Mercury Grand Marquis

Should automakers give some of their brands the axe?

Last week when billionaire investor Kirk Kerkorian raised his stake in Ford to 120 million shares, many wondered what demands he would make of the beleaguered automaker. It didn't take long to find out, as just days later one of his associates suggested that struggling brands Mercury and Volvo be sold within the next year and a half. Ford quickly came to their defense, but the suggestion got many automakers and analysts wondering: with declining sales hurting the entire industry, is it time for some auto brands to die?

There is no doubt that Mercury is struggling, with a drop in sales of 36 percent over the last five years. In addition, the brand has one of the oldest customer bases (the average age of a Grand Marquis buyer, for example, is 72) but killing off an entire division is easier said than done, and there are several reasons to stick with the status quo. In Mercury's case there is concern about ditching the brand's customers -- sales may be dwindling, but 40 percent of its buyers have never owned a Blue Oval product before (60 percent for the Mariner Hybrid), and there's no guarantee they would buy a Ford or Lincoln if the brand were dropped. Times are tough, and giving up even a small number of sales can be dangerous.Another problem with killing a brand lies with dealers -- many Mercury outlets are paired with Lincoln but not Ford, meaning that removing the division could halve business, and Lincoln dealers sell too few cars to stand on their own. This is also an issue for GM, and the automaker has begun consolidating its less popular brands into "superstores" that pair Buick-Pontiac-GMC and Cadillac-Saab-Hummer, respectively. That way if the General ever decided to eliminate Buick, for example, most dealers would still be able to survive.The last major obstacle to contraction is figuring out what to do with the labor force that's left over. Undoubtedly workers will have to be laid off and plants shut down, and with union relations already tense this can be expensive. When GM eliminated Oldsmobile and Chrysler dropped Plymouth, the process was long and fraught with difficulty. Sometimes despite declining sales, keeping factories open and the workforce happy is in fact the cheaper option.Despite the obstacles, many think it's time for some brands to go -- but which ones? Mercury would seem like an obvious choice. Volvo's sales are down 7.9 percent in the first quarter of 2008, but the brand has a strong identity and desirable products. With U.S. sales dropping by 23 percent in 2007, killing off Buick looks like a no-brainer -- except that it's one of the strongest players in China, selling nearly twice as many cars there last year as in the States. Under the new ownership, Chrysler plans to trim its lineup so models don't compete against each other, but the automaker's three brands all have very separate identities.Say you were given the reins of one of the world's major automakers, would you put any brands out to pasture? Should Mercury get another chance or is it finally time to lower the axe? Pontiac and GMC sell better here than Buick, but without a big international presence they're easier to kill off. Land Rover and Jeep have strong identities and aren't likely to be killed, but they only sell SUVs at a time when the big vehicles are losing popularity. And what about foreign automakers, do they have any brands that need to go? Tell us your opinion: which divisions deserve to be back next week, and which have to go home?Source: BusinessWeek